Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2021-Q1

[Baris Safak, executive]

I think we can start. Let's not make you wait so long. Thank you for attending our first Q 2021 meeting. Welcome to Anadolu Sigorta first quarter earnings call. Today, our presenters for today's meetings will be our CFO, Erdem abi and me as IR manager. As usual, Erdem abi is going to start over the meeting for technical side, and I'll be carrying out for the financials, rest of the presentation. We are going to have a Q&A session at the end of our presentation. You can either ask your questions written via chat box or verbally by raising your hand after you raise your hand. We will un-mute your microphone so that you can direct your questions. This is the first time we are using Zoom Webinar. So we are not much used to it. But I think we are going to succeed using this one. So we might start, I guess, if Erdem abi is also ready, the floor is yours, Erdem abi.

[Ibrahim Esenkaya, executive]

Thank you, Baris. Good afternoon, dear participants. Welcome to Anadolu Sigorta first quarter of 2021 financial results presentation. This is the first financial presentation of this year. At the same time, my first presentation with my new task. In the meantime, I would like to remind and thank Mr. Gören who was CFO and was doing this presentation before. Nearly 2.5 months ago, it was happened at first changing and Mr. Gören was assigned a different tasks. And I attended Deputy Chief Executive as a CFO. So the -- firstly, I would like to introduce myself a little. My name is Erdem Esenkaya. I have been working for 26 years in Anadolu Sigorta. I have a PhD degree about accounting and auditing. I had worked as Chairman of the Internal Auditors Board in the company. And now I'm working as the CFO in my company now.

Today, I'll present this webinar with my colleague, Mr. Safak. He was -- he has worked as a manager responsible IR, at the same time, fund management. And then let's start our presentation. Okay. Our presentation consists of 3 parts: firstly, company and market overview; secondly, technical results. Finally, financial highlights. Company and market overview. Now when I look at the sector performance and pandemic impacts are very important to all sectors and all economy this year. Premium production at TRY 21 billion is nearly 21% increased if we compare to last year. This performance, the press competition is very effective and is decisive in the balance of the sector performance.

On the other side, motor brands, motor own damage and motor third-party liability are very important branches for each sector, but some improvings affect the motor brands in this term again. One of them, Supreme Court decisions, impacts on volatile effects on claim expenses are very important. For example, replacement part price has changed approximately 35% or 40% if we compared to last year. Of course, it depends on the car model, but a FX effect at the same time, very effective motor brands expenses. Policy rate and CPI levels, again, sector is policy rate and CPI levels are very effective in sector. Treasury is floating around 18%, Central Bank's further steps awaited, taxation change expected and especially, Turkish liras lost ground feet 8.6% to currency baskets.

If you look at the top 10 non-life companies in the sector, '21 Q1, it is quite interesting if you look at this table and pie chart again, because in our sector, in our country, there are 40 non-life insurance companies. And then look at the total premium increasing from 17% to 21.4%, nearly 21% increasing. But if you look at the total premium, the first 5 or top 5 companies produce more than half premium production. Türkiye Sigorta, Allianz Sigorta, Anadolu Sigorta, Aksigorta also, Axa top 5 companies. And the others near -- totally, when we look at the totally top 10 non-life companies all or premium production 7% to 5% is quite interesting, and the other 25% are the other 30 different and medium or the small insurance companies. Production share by companies, we look at the pie chart, Türkiye Sigorta, 15%; Alliance Sigorta, 12%; and our company Anadolu Sigorta, 11%; Aksigorta 7%; and Axa, 6% production share, the total premium and market share.

Yes, we can go on. If we look at the highlights '21 Q1 balanced business profile in competitive pricing environment ranked in top 3 10 non-life branches, premium production at nearly TRY 2 billion. And if you compare the last year, this is 21% year-to-date. Strong fire and general losses growth Q1 42% and 36%. Robust growth in asset under management is very strong for us. Proactive cash flow management is very important and very favorable for us. And assets under management reached nearly TRY 7.8 billion. If you look at -- compared to last year, nearly TRY 454 million additional plus management flow this year is very important if you look at the end of the March. TRY 160 million dividend, the dividend in this year and it affect 33% of the net income this year. Investment yield on rise, proactive duration and yield curve management, risk-based portfolio management, investment in low-risk Turkish banks and top-tier corporates.

Highlights. If you look at highlights '21 Q1 gross premium written. If we compare the Anadolu Sigorta and the sector, we can see easily the sector TRY 21.4 billion, and our company, Anadolu Sigorta produced TRY 2.4 billion. If you compare the last year, the -- approximately the same percentage, 21% increasing with compared to last year at the same term. And in our branches, in our premium production, health, motor and others are very important branches for us. If you look at this sector and Anadolu Sigorta compare it, you can see easily in this graphics. If you compare the last year in health 17% increasing, but health in sector 19%. Then we look at -- there is a 2 point differences, but I would like to take your attention here. Last year, sector 24% increasing but this year, 19%, 5 point minus. But in Anadolu Sigorta, there are 4 points increasing. So it is very important for us because the health brands are very important for us, it's very important.

Then look at the motor branches. Anadolu Sigorta, if I compare the last year, there is a 10 point minus, but at the same time, the sector decreasing too. The other branches when we look at it 28% in our company and sector 31%.

Yes. After the graphics, we can look at this table. At the same time, we can look at some total values, especially branch and branch, especially motor third-party liability, motor own damage, fire and natural disasters, health and others the total. If you compare to last year, we increased 20.7 percentage and the sector 21%, a little bit differences, but nearly the similar. The main, I think, differences, especially motor third-party liability because we are 13.7% increasing, but non-life sector increased only 35 percentage. On the other hand, motor own damage, thank you, motor own damage in sector, 30 percentage increasing in our company, 17 percentage, but especially, this is a kind of strategic behavior for us. Yes, you can go on.

Market share, all company, if you look at the sector, we are the 3rd ranked but at the same time, different branches, we are the different ranks, especially motor third-party liability, motor own damage, watercraft and aircraft liability. We are the first rank in the sector. Fire, marine transportation, aircraft, the second rank in the sector, health, general losses, accident -- on accident 3 ranks in the sector.

Slide, please. This graphic is -- I think, is important for us because this shows the net profit drivers, consolidated and unconsolidated profit, especially end of the year, net profit TRY 150 million. Underwriting minus TRY 145 million; and investments, plus TRY 156 million, other plus TRY 4 million; and finally, net profit, TRY 166 million. If you look at the consolidated, consolidated, we have got another low Hayat insurance, Anadolu Hayat insurance, and we have got a dividend for this company. So it affects consolidated table and the values. So if we use this, our net profit end of the year, TRY 119 million, again, underwriting TRY 145 million; investment, TRY 156 million, minus TRY million and net profit quarter TRY 120 million.

Distribution channels, we have got very large distribution channels, nearly 2,400 agencies, 1,100 bank branches. So totally 3,500 agencies. We are all Turkey. If you look at and compare the sector and Anadolu Sigorta, agencies is very condensed in the production. But if the sector, if you look at the compare last year, there is a 3 point minus. Similarly, all company, agencies production minus 1%, but not like a sector is better than the sector. If we look at the bank's, sector and -- is a similar, if we look at the -- if we compared the last year. But in our company, bank production increased plus 1%. And if you look at the broker produce in sector is the same in '19 -- sorry, 2020 and '21. If you look at -- if you compare the same, but the differences, especially the others in the sector, 3 point plus. In Anadolu Sigorta, the differences, the orders, if we look at the other branches, other sorry, channels, minus 1% from 17% to 18%, plus 1% from 14% to 15% the broker.

Slide, please. Yes. Now we would like to give some information about technical results. And in this technical results, especially the accident branch, gross premium written and technical earnings this chart, this graphics shows that gross premium written 2020 TRY 46 million, but in 2021, TRY 59 million; claims net, 15.2 percentage minus, combined ratio, combined ratio is important for us, 3 -- 4.7 increased. Health branch, again, then we look at 16.6 percentage increasing. Net claims, again, there's an increase in here 11.8% (sic) [ 12.8% ] combined ratio 3 points plus. Motor own damage, we will look at the 15 -- sorry, 17 percentage increasing, claims net, 36 percentage increasing and combined ratio, 6.9 plus. General losses, 35.6 percentage increasing. Again, claims 46.3 percentage increasing and combined ratio for 11.8 plus. Fire, 42 -- 43.3 percentage increasing and claims net, 45.8% increasing, combined ratio 25.4 plus. Motor third-party liability, when compared before 14.7 percentage (sic) [ 13.7 percentage ] increasing. Claims net, 31.4 percentage increasing again and combined ratio 1.8 plus.

But in this section, I would like to take attention because the claims net increasing is higher but the combined ratio increasing is not too much. This is especially the combined ratio expense, expense ratio is low or the -- lower than the others ratio so combined ratio affected minority. [Foreign Language]

Yes, profitability, combined ratio. As you see, there are just a moment, please, I see. Yes. Combined ratio, there are different branches, MOD, MTPL, fire, health, accident, general losses. Motor own damage 102.2% is a little low for us, but the especially fire and health combined ratio hike and approximately 114.9% is a high combined ratio in this term. Yes. Now, we would like to give information about financial highlights, and I would like to give the last slide to Mr. Safak. Thank you.

[Baris Safak, executive]

Thank you, Erdem abi. I'm going to continue with financial highlights, our financial figures as we do in the previous presentations. First of all, our balance sheet figures, you can see on the presentation slide. We have been increasing in our assets. Our assets increased by around 10% in the first 3 months of the year. Our last 3 years growth -- annual growth rate was around 20% for assets. We were able to increase higher than our growth in compound growth rate in the first quarter. Our assets under management also increased. It was a bit below our total assets. It stood at 6.2%, and we reached almost TRY 7.8 billion at the end of first quarter. Again, for the last 3 years, our compound annual growth rate for assets under management stood at 21%.

On the other side of the balance sheet, technical results is the biggest part, portion of our liability side. It also increased with 7.1% with our technical results increasing. Main part is coming from all standing [ shareholders ], as you all know, I guess, shareholders' equity at the first quarter, our shareholders' equity shrank a little bit with TRY 22 million. We paid out TRY 160 million of dividend from our shareholders' equity, main reason, we may say for this decrease in our -- in the first quarter of our shareholders' equity, I may say.

On the next slide, I'm going to talk about our income statement, our summary of our income statement, as you see. Our technical income, which does not include the technical -- financial income transfer to technical side. It stood around 1.2 -- TRY 1.3 billion, with an increase of 16% compared to previous year's first quarter. Technical expenses increased as a result, our combined ratio, of course, increases. As you see, technical expenses increased 27% at the first quarter. And our financial income increased 71%. There is a -- it is an important increase in the first quarter to around TRY 400 million. And when we deduct tax plus deferred tax from our gross profit, we were able to reach TRY 166 million net profit with an increase of 10% compared to previous year's first quarter. Our consolidated net profit was lower for the first quarter. As a result of strong dividend coming from Anadolu Life, we were able to get -- we get TRY 76 million dividend income. So that's the reason the consolidated net profit is below unconsolidated for the first quarter.

On the next page, we have placed the breakdown of our P&L. As you see, we -- our technical earnings stood at minus TRY 194 million. Again, this one in this figure, the technical financial in contrast to the technical side is excluded. And we had done investment income around TRY 373 million. All FX gains are included in this investment income, I may say. As I have said, dividend income coming from Anadolu Hayat depreciation TRY 72 million. We had other figures like amortization, provisions, reserves for bad debts. These provisions are not technical provisions. They are reserves for bad debts. And then we deduct again, it takes we are going to reach TRY 166 million net profit. This is the breakdown of our P&L.

And again, on the next page, the chart showing the trend of our return on equity for the last 5 years, starting from 2017, we were able to make an upward trend up to 2019. And since then, it has been a little bit flattish as you see. The latest figures are trailing 12 months trailing results. And our ROE for unconsolidated ROE stood at 19%, whereas our consolidated ROE is 24%. It's still strong for the consolidated part, I may say, much above the inflation in CPI rates.

And on the last page, as usual, we have our investment portfolio breakdown. The investment portfolio increased more than TRY 1.7 billion in the last 12 months. It was TRY 6 billion at the end of first quarter last year. The breakdown hasn't changed much. We had shifted a little bit from bonds to deposits with a strong increase in bank deposits mainly. So the biggest portion is still bonds, both eurobonds and TL bonds, I may say, 44%, which is around TRY 3.7 billion. And deposits is with 41% there it is amounted to TRY 3.1 billion. We have some funds, TRY 800 million and stocks around TRY 300 million. So the total mix, TRY 7.8 billion at the end of first quarter. And our yield coming from this portfolio, I may say, when we exclude Anadolu Hayat dividend, it stood at TRY 316 million, which makes a return around 17%.

So this is all our from first quarter presentation. We may proceed to Q&A session. So if you have any questions, just you may write down to chat box or if you'd like to ask verbally, you may raise your end, and we are going to un-mute your microphone. Thank you for listening to us.

[Baris Safak, executive]

We have Ovunc online. I think he's going to ask his question verbally. Just go ahead, Ovunc, thank you.

[Ovunc Gursoy, analyst]

Thank you for the presentation. I have 2 questions. The first one is we have a lockdown 2 weeks lockdown. And last year's numbers were quite strong in the second quarter because of the lockdown. What should we expect from this lockdown this time? And if you can give some color about the second quarter, I would appreciate.

Second question is about the court case. Are there any developments regarding Supreme Court decision on technical interest and also about the general conditions of traffic issuance?

[Baris Safak, executive]

Thank you, Ovunc.

[Ibrahim Esenkaya, executive]

Okay. Mr. Gursoy I can give answer about your questions. First of all, as to repeat, this is the pandemic term. And if we -- but last year, we laid the same thing, especially in LatAm, of course, the market will be -- or the life will be stopped or will be a little bit slowly. So of course, it will be affect all claims. And it is meaning all claims will be loved -- will be decreased in this term. But after that, next term, of course, it will be increased again. Maybe the second quarter end of the second quarter, it will be affect positively our financial values. But after that, maybe third or fourth quarter, it will be affect more than worth. So this is a kind of -- how can I say, but we will think -- we'll leave the same claims. Not now, but later. Secondly, Supreme Court -- Supreme Court decision affects all insurance sector, so will affect to0. It will be the technical reserve. It will be higher than now. So of course, it will affect profitable. But now it is very early to say how will it be affected or profitable because there are some debate in the Turkish insurance society. So after that, maybe we can -- something can be changed, but it doesn't change anything. Now, of course, we will take -- will increase all reserves, and there will be effect our profitable values. Thank you.

[Baris Safak, executive]

So if you have any further questions, just please raise your hand or just write the chat box. Yes. We don't have any further questions, Erdem abi. So, right.

[Ibrahim Esenkaya, executive]

We can finish our presentation. We can say thank you for attending this webinar and presentation for listening for us and joining us. Thank you very much.

[Baris Safak, executive]

Thank you all. Hope to see you -- all of you at the end of second quarter. Bye.

[Ibrahim Esenkaya, executive]

Okay. Thank you. Bye.